IRISH WATER failed a crucial EU test because the Government exerted “considerable control” of the company, Independent.ie can reveal.

Low payment rates from households are also cited as a reason as to why its borrowings must now go on the Government’s balance sheet.

European statistical agency Eurostat has said that “significant and continuous” Government funding and supports, along with the fact that the coalition appointed board members, are among the reasons why it failed the so-called Market Corporation Test.

In a summary of its decision, Eurostat gives five reasons as to why the costs of the company will remain on the national balance sheet.

It also says that prices are too low, with 70pc of householders expected to pay less than the capped amount of €260 for a two-adult household and €160 for a single-adult home due to government subsidies.

The five reasons are:

· “Considerable government control” over Irish Water, “in particular” over board appointments and operations, and the introduction of pricing caps.

· The fact that Irish Water “merely reorganises” the operation of the network from the local authorities, and that a “large majority” of Irish Water staff remain employees of city and county councils.

· The “significant and continuous funding” and support to the company in the form of operational grants and funding.

· The lack of “economically significant prices”, and in particular the cap.

· The fact that sales must cover at least 50pc of production costs. “This is further amplified by the high number of households not paying their bills,” Eurostat said.

Eurostat said its full decision would be published on Thursday, but noted it had already indicated in April that it would adopt this approach.

Finance Minister Michael Noonan has insisted the Government budget plans will not change despite the decision.